The Traction Gap® Framework offers a way to think about the key stages in a startup’s early life. However, the go-to-market phase isn’t a straight shot, where a startup can simply move from Initial Product Release (IPR) to scale. Most startups move in fits and starts, going through iterative cycles as they learn and adapt by working with customers and consumers.
To help you with this process, the four Traction Gap architectural pillars — product, revenue, team and systems — provide a structured way to benchmark your progress. You must ask yourself, “Are we prepared to move from where we are to the next stage along the Traction Gap?”.
Each of these pillars have specific requirements linked to each stage of the Traction Gap Framework journey. To prevent project delays and wasted capital — and to avoid jeopardizing future funding — you must properly understand these requirements.
Let’s look at each of the four core pillars in turn:
A startup’s product architecture refers to its collection of defining technologies, applications and features. A well-developed product architecture helps a startup to achieve rapid product/market fit by successfully appealing to customers (users).
Of the fundamentals critical to achieving traction, product architecture is where most early stage startups are the most effective. No surprise, as most entrepreneurs decide to start a company because they believe they have a great idea for a product.
Sometimes, in order to nail product/market fit, a team may discover they need to pivot. This could mean building out new product capabilities, or just a change in positioning or market segmentation. Remember that these pivots are common, and a totally healthy practice — many successful companies started out as completely different enterprises.
If a team does decide to pivot, early stage investors must be open to providing more time and capital. Most will be — if the team can make a convincing argument the potential for decent value creation still exists. More importantly, startup teams must be 110% sure that customer and market validation has been achieved before declaring product/market fit. In other words, they must determine they have the metrics that show they have definitively achieved a Minimum Viable Product (MVP).
Startup teams should resist the urge — and pressure from investors — to declare MVP too soon. They must be willing to postpone expensive go-to-market scaling until product/market fit has been confirmed.
Revenue architecture includes a number of key components including: the name and attributes of the startup’s category; a messaging matrix; a pricing strategy; a sales strategy and other business model elements. A comprehensive revenue architecture should be designed to enable a startup to generate and monetize awareness, engagement, and usage. Shaky revenue architecture is bad news, posing the greatest near-term risk of failure for early stage startups once they enter the go-to-market phase.
When a startup declares it has a Minimum Viable Product (MVP), its value propositions should be well thought through but are seldom yet entirely proven. The startup will likely still need to experiment with its business model and processes; different ways to convert awareness and interest into revenue.
For B2B startups, revenue architecture involves strategies to:
Lower Customer Acquisition Costs (CAC);
Identify upsell opportunities;
Increase usage rates; and
Optimize Top of the Funnel (TOTF), Middle of the Funnel (MOTF), and Bottom of the Funnel (BOTF) conversion rates.
For B2C (or B2B2C) startups, this process normally means testing methods that:
Optimize Lifetime Value (LTV) to Customer Acquisition Cost (CAC) ratios (including organic as well as paid acquisition);
Create efficient supply-side acquisition in the case of marketplaces;
Experiment with margin on transaction fees, subscriptions, etc., building toward positive unit economics and contribution margins;
Increase engagement of Monthly Active Users (MAU) and Daily Active Users (DAU); and
Build repeatable and scalable geographic or market segment roll-out strategies for multiple consumer marketplaces and services.
Whatever the product and business model, entrepreneurs must be prepared to build critical momentum. They need to establish a Minimum Viable Category (MVC), develop thought leadership concepts, and create an “epic story” talk track that compels the world to use the startup’s product or service. All of this is part of the “market engineering” that must be performed alongside product engineering.
Solid market engineering puts startups on the right track to generate the momentum they need to propel them across and out of the Traction Gap with sustained and significant growth.
Ask any experienced investor: A huge risk, and one of the biggest causes of startup failure, is related to team dynamics.
Early stage startups often have small, product-oriented teams, and have not yet hired a complete management team, or the other personnel needed to scale. Competition for A-level talent is fierce, further impeding a startup’s ability to grow. Often, the wrong people are hired for the wrong role, or early team members are unable to evolve in line with the company. These people can easily become toxic to the rest of the team.
Other times, the founding team may pull together a good core management team, but lack a comprehensive strategy to address the extended team: the board of directors, customer advisory board, products council, employee advisory group, and so on. Team architecture is a complex beast!
Entrepreneurs must systematically build up their teams and dramatically reduce the team dynamic risk. This is quite the balancing act. But the more you can fill out your team and the longer you work together, the less risk there is in the eyes of investors.
The systems and processes of a startup can either help it accelerate growth, or make it stagnate. A successful systems architecture must integrate front and back offices, establish performance metrics, and cultivate the progressive culture startups need to thrive.
When Wildcat invests in early stage startups, many of them are using a rudimentary CRM solution for sales and support, a simple development system, and maybe a basic e-commerce platform for the web. They typically outsource back-office functions such as payroll. Once we invest, we ask them to architect — though not necessarily implement, yet — new back- and front-office systems and processes. These are the systems and processes they will eventually require to scale.
As well as operational systems, startups must ensure they have a solid development stack (the suite of applications that a startup uses to manage its development process). We have found that the type of engineering management infrastructure a startup uses can negatively impact margins and hamper the company down the road.
We have worked with many high-growth technology startups, and we counsel founders and teams to build systems and processes with the right foundation early. This allows operational efficiency to fuel, as well as keep pace with, growth — while minimizing the amount of financing required.
How to use the Traction Gap Framework
The Traction Gap begins at a startup’s Initial Product Release (IPR) — typically a year or so into its existence. It stretches to the value inflection point of Minimum Viable Traction (MVT) — which can occur as much as three years later, when the startup has achieved a certain level of revenue growth, engagement, downloads, or usage. These variables signify market validation and positive growth.
In other words, the Traction Gap is the all-important 36-month span that determines whether a company will blossom or perish. During this period, the importance of the four pillars — product, revenue, team and systems — will vary.
From ideation to Initial Product Release (IPR), the go-to-product phase, team and product take a front seat.
From IPR to Minimum Viable Repeatability (MVR), revenue architecture is paramount.
From MVR to Minimum Viable Traction (MVT), systems architecture must come to the fore front as the company prepares for the go-to-scale phase.
We can’t guarantee you will succeed if you use the Traction Gap Framework with its four architectural pillars and foundational principles, but we firmly believe if you don’t you are more likely to fail. We want you to succeed!
To get a deeper understanding of the Traction Gap principles, check out these resources: